Health Care Supply Chain Innovation with Dr. Pearce McCarty, Co-Founder, DOCSI

Frank Jaskulke 

Good morning, good evening, and good afternoon to everyone out there in Medical Alley. Thank you for joining us on another episode of the Medical Alley Podcast. This is your host, Frank Jaskulke. Today, I'm really excited. We're gonna be joined today by Dr. Pearce McCarty, who's an orthopedic surgeon, an entrepreneur, and he'll tell us a little bit more about what he's up to. Pearce, thank you so much for being on the podcast today.  

Dr. Pearce McCarty 

Frank, thanks so much for having me. I'm super excited to be here. Love your work. 

Frank Jaskulke 

Thank you. 

Dr. Pearce McCarty 

And if I could indulge you with a funny little story. I was excited about the invitation to appear on Medical Alley Podcast. Talking to my 14 year old daughter, I mentioned to her that I was going to be on a podcast and mistakenly thought she'd be impressed. You know, her first response was, 'Well, why?' And I said, 'Well, you know, I'm just working on a few interesting things. And we'd like to talk about those things, and people might like to hear about them.' And her second response was, 'Like what?' I said, 'Well, maybe we won't get into that right now.' And then she interrupted me, held her hand up in the kind of talk to the hand type of way and said, 'You know, Dad, anyone can do a podcast about anything.' And then kind of did a mic drop and walked away. That aside, Frank, I personally am super excited to be here. 

Frank Jaskulke 

And I am excited to have you here. Nothing like children to help keep us humble and our egos in check. She is correct. Anyone can do a podcast, but not anyone can do a good podcast. And that's what we'll have here today. So maybe the place to start on that note is you're working in preferences. We're going to talk a lot more about that and the rest of DOCSI. But what is a preference card? What are we talking about?

Dr. Pearce McCarty 

Good place to start. So I think the best way to understand a preference card is to think about it, first of all, as kind of a bill of goods. So when a surgical procedure is done, when an orthopedic surgeon is going to do a knee replacement, when a cardiothoracic surgeon is going to do a coronary artery bypass graft, when when any surgeon or proceduralist is going to do any of their procedures, there has to be a set of instructions, a list of a bill of goods, a list of things they need to do that procedure. When the team that is helping them execute this procedure is setting the operating room up, they need to know what to grab, they need to know how much of it to grab. And they need to know how to use it. And so the document that describes all of that is called the preference card. And essentially, if you boil it down to the two words, it used to be literally a five by nine index card that had the preferences of the surgeon written down on it so they would know what to grab. It's a little bit more -- or a lot more -- sophisticated now. But we look at it at DOCSI as a really vital source of information. There is no one source of truth, unfortunately, when you look at supply utilization in procedural environments in healthcare, but it is one of the sources of information that we can reconcile with others in order to achieve kind of the best source of truth so that we can help drive efficiency and lower cost in procedural environments. 

 Frank Jaskulke 

Oh, interesting. And the status quo as it is today, is this a paper document? Is it electronic? Like, what are what are doctors and nurses and health systems doing today?

 Dr. Pearce McCarty 

All over the board. I would say in most sophisticated healthcare systems that have a kind of 2024 IT stack, if you will, driven by one of the large EHRs like Epic or Cerner, these documents live in digital format within the EHR. In the best case scenarios, they're integrated with supply chain, they're integrated with a workday stack or something like that. Contrast that with many ambulatory surgery centers who might be working still off of a five by nine index card. And you know, I've heard description of physicians writing as being difficult to read illegible. That is true. I'd say most writing and health care falls into that category. So they might be running it off a handwritten five by seven index card, they might be running it off of a Google sheet or an Excel spreadsheet. But so it really runs the gamut. And I have to imagine then that means room for error, inconsistency, waste, like things that don't make the procedure as productive or the health system as efficient as it could be.  So now we're tapping into the real incentive, the driver behind why we created this company and the solution in the first place. So I have about 17 years of experience as an orthopedic surgeon working in operating rooms, and there's that old saying: necessity is the mother of invention, right? And so the observation over a long period of time was of a significant amount of waste in the operating room. Things that would be opened, expensive things, right? It's kind of like, you know, the Pentagon toilet seat scenario in health care, things that you wouldn't imagine would cost very much cost a tremendous amount. These aren't things that you could go pick up at Home Depot. Although they might look exactly like it. But we're talking 10x the price. So, you know, looking at at things that were opened and not used on the what's called the back table in the operating room, looking at the literally over the course of a year thousands of items that are brought into an operating room. and never used. And then looking at the labor demands this placed on the operating room staff, looking at the delays it could create, and starting to think about inventory when actually acquired the skill set to be able to think about things like that. Started really pushing me towards how can we do this better? And so that was the driving force for the creation of DOCSI and solutions around how do we optimize really procedural supply chain and what's brought into the operating room. How do we create a true source of truth that's reliable, that's consistent so that these teams know what actually is used, and know what they need to grab in the operating room. Just to put it in context, I know we might be jumping ahead a little bit here. But so you know what DOCSI really tries to do beyond optimize this thing called the preference card is we're really, we're mission driven towards increasing transparency around cost and supply utilization for physicians. We're really most focused in the procedural space right now. So how much does what you use cost? And how much of it do you use? And then provide surgeons with the opportunity to make decisions around that. So we want to make this intelligence actionable at scale. And what scales better than digital solutions? Well, I don't know. I mean, they scale pretty well.

Frank Jaskulke 

When you're, I know you have some early traction with this. When you're providing that information, that intelligence to the physicians, what what sort of changes are you seeing? And then what kind of like dollar impact is that creating?  

Dr. Pearce McCarty 

Yeah, so if I could circle back to that in a second, I just think for the listeners, I have an analogy I like that explains, kind of puts it in perspective, the problem we're dealing with here in healthcare, and the analogy kind of runs like this. So healthcare is like a restaurant, all right. And the patron is the patient. So a patient walks into the restaurant, sits down, and they're really hungry. That's their problem. That's their pathology, if you will. They need to order something to fix that problem. So they open the menu, but the menu is unintelligible. They don't really understand what the dishes are, how they're made, or which one they should order. And along comes the waiter, the waiter's the physician, surgeon in our case, and she knows everything on the menu, understands it backwards and forwards, knows how the meals are prepared and says, 'You know what, Frank, this is what you need. Alright, I'm going to order this dish for you.' And that's what you came in here looking for. But there are no prices on the menu, the physician has no idea how much this costs, and also has no idea how many times they've ordered that particular dish over the course of a year, two years, 10 years, right. So in aggregate, the aggregate cost is a complete unknown. Now, to complete the analogy, they walk away knowing that they're not going to be paying for this. And really, the patient might be paying a portion, but not much either. And so then along comes the general manager for the restaurant, that's the health insurance company, right? And they say, Okay, this is how much it's going to cost. This is how much we're going to pay, this is how much you're going to pay etc. So, there's a huge gap there. There's a huge disconnect. If you look at what's really driving the expenses of that restaurant, which is the healthcare system, the hospital, it's the decisions that that physician is making. And, yes, there are other issues we could talk about in terms of supply chain logistics, but really, it's I mean, amd the statistics are pretty staggering: 80 to 90% of healthcare costs driven by physician decision making, and yet physicians lack a lot of the crucial intelligence they need in order to make decisions that would be considered perhaps, in many cases, fiscally responsible. They want this. They want this information, desperately. Every physician I talked to is very interested. They want this knowledge. It's hard to get. So we're mission driven to bridge that gap. All right now, to talk to you about impact, your question was about kind of more specifically, how can we come in, implement in the healthcare system and what kind of changes do we drive? Alright, well, I'll talk to you about a recent implementation we had. This was a smaller scale implementation. So we implemented across what's called a service line, which is really a specific subspecialty that functions within a healthcare system like general surgery. This happened to be a general surgery implementation. Around 15 surgeons were involved in this implementation. So over the course of our introducing the solution to the surgeons, having them interact with the solution, make decisions on our platform, ingest the data that we provided, we eliminated about 12,000 items being selected, picked by the materials management crew down in the operating room over the course of a year. 12,000. And this was just about 15 surgeons, all right. We reduced costs, like the hard bottom line drop to the P&L was around $300,000. Now, that is a conservative estimate, because it really doesn't — that particular estimate did not take into account the labor savings, which is a little bit more challenging to get at this is, this is the easy kind of cream on the top.

Frank Jaskulke 

The direct cost you can track.

 Dr. Pearce McCarty 

Yeah, absolutely. And so you might say, well, you know, what's the time to savings here, because that's important as well. There are many healthcare systems that have embarked on initiatives to drive down costs through preference card optimization, or supply utilization or cost transparency with respect to physicians, but this is labor intensive. And it's difficult to accomplish at scale. If you have a large healthcare system, say a medium sized healthcare system, maybe 5 billion top line revenue, maybe 10 to 12 hospitals, right? We see a lot of those systems in the Midwest. We're talking 6, 12, 18 months to get these types of projects accomplished. And then there's no tool in place to maintain the gains. So you get regression to the mean. Right? So we were able to accomplish this at scale. The average time that a single surgeon would interact with our platform ranged between a minute and a half to five minutes. That's it. So I think one of the keys, and we follow some design principles, but one of the keys when you're when you're working with busy individuals such as physicians is you have to make everything convenient. Digital technology can be very convenient. You have to make it intuitive. You don't want to make someone learn a whole new process. If you look at some of I don't know if you're familiar with Everett Rogers' work on diffusion of innovation. So one of the keys to facilitating diffusion of innovation, or adoption of new technology or workflow is you've got to decrease that frictional cost of implementation, and so you don't want them to have to learn something new. You don't even want to have to have them download an app or create a password. If they can just look at it and understand it and interact with it, then your chances of adoption are significantly better. And then the final thing is you have to make it actionable. I mean, personally, Frank, I had been in situations where I've had supply chain administrators come to me with information. And it was good information. But it wasn't actionable. And so I kind of would be left thinking, Okay, I understand this, I appreciate this. Now I want to do something about it. And that sometimes was challenging. So we wanted to make this platform actionable as well. 

 Frank Jaskulke 

Oh, that's very interesting. And I gotta say, you know, even on that, that one service line, a $300,000 impact would probably be material to their performance in that year. And if that holds up across a system that with what hospital margins are what ASC margins can be, that's material.

 Dr. Pearce McCarty 

It's very material. It adds up very quickly across service lines. We're looking at a situation in healthcare today, right, in 2022, on average, health care system saw about a 21% drop in EBIT on margins and about a 24% drop in operating margins. Now that's paired with since 2019, about an 18% increase in supply costs, 19% increase in labor. Those are conservative estimates. If you look at 2023, around 50, 60% of healthcare system in the US were posting negative operating budgets. So more than ever, cost containment is crucial to the mission of these health care systems. If you look at ambulatory surgery centers, controlling procedural supply costs is even more important because there's only one source of revenue for an ambulatory surgery center. And that is your case margin. So if you're not controlling that case margin, then your ambulatory surgery center is probably not going to be in business for very long.

 Frank Jaskulke 

Right on. You know, one of the things I know you guys have been working on, you talked about the ASCs. You've also been working with another Medical Alley partner with Allina. And something we hear from a lot of entrepreneurs is their desire to engage with right, the large strategics the corporate customers early on in their development, but it can be a challenge that, you know, expectations don't line up, timelines don't line up. People are busy. Maybe for the benefit of others that are out there, could you talk about some of that experience and how you know, DOCSI as a young startup approached that and, you know, tried to make it work?

 Dr. Pearce McCarty 

Absolutely Frank. And I think that is key. Really can't overestimate the value of finding a large, capable, progressive, innovative partner that allows you to, in a sense, direct some of the development of your platform. I can't overemphasize what a fantastic partner Allina has been during the development of our platform. And if I could call out, you know, a specific individual Tom Lubotsky, who's the Senior Vice President of supply chain at Allina. They approach a lot of technological innovation in a very progressive manner. They look to facilitate it, they look to incorporate it in workflows. How do you find a system? Now, it does have to, your platform, your mission, your value proposition does have to complement what their priorities are. And that's kind of step one. Step two is finding that internal champion. And if step one is there, if you do have a value prop that resonates with some of their corporate objectives, then you will be able to find a champion within because there's someone who's interested in the same thing that you're trying to develop or create. Otherwise, you know, that first resonance wouldn't be there. And so, you know, once you've done that, I think you have to really look at them as a partner more than a customer, right? Because you're getting a lot of value out of that relationship that isn't necessarily monetary. You're delivering a lot of value to them that, depending on what your value prop is, could be monetary, it could be, you know, a number of other things that improve quality of care, or quality of life for the staff, etc. But I think having a value prop that resonates with their corporate objectives, finding that internal champion in developing that relationship over time, it's not quick. It wasn't quick for us. And I doubt it's quick for anyone else. But you know, over time, you can nurture that relationship. And if you're bringing value that they desire, then that will continue to grow.

 Frank Jaskulke 

Interesting. And I'm shifting a little bit, but I can hear the passion in your voice for this. And I think a lot of people, especially if they weren't close to this issue, you might think supply chain sounds like drying paint. But you're clearly passionate about this. What drove you to make the leap from being a physician, to being an entrepreneur and addressing this sort of issue? 

 Dr. Pearce McCarty

Yeah. I think you're right. If I took myself back 15 years and thought I'd be innovating in healthcare supply chain, I think I would have said maybe I'd rather watch paint dry on the wall. But really, there is a — we're addressing a significant problem, significant gap. And I don't see how we can bend the care, the cost of care curve, if we don't engage physicians around the topic of how much what they do costs on a daily basis. And if we don't do it in a way that is convenient, and a way that is actionable, in a way that really fosters a culture, of fiscal stewardship among that population of physicians, so that day in and day out, of course, they're going to be driven by their clinical expertise to make the best decisions for the patient. But I think most surgeons, most physicians would agree that in a given situation, there are multiple options, right, some of which are more expensive, some of which are less expensive, but for which the clinical outcome is equivalent. And so making the decision between those options requires knowing what the options are, and understanding what the unit cost is. And what the aggregate costs is over whatever time period makes sense for that system. Most of the time, we look at an annualized cost, but it could be a quarter, it could be half a year, it just depends. So I think, you know, if I dial it back, what really drove me to make the jump is the thought that and the desire to start making a difference at scale. As a physician, you make a difference one patient at a time. And that means the world for that patient. And it's super important, right? Can't overemphasize that. I think everyone has their personal journey and their growth as an individual, as a professional. And in my own, I ultimately started looking at how can I broaden the impact that I can have? I initially did that within the medical device space, actually. That was kind of how I initially made my jump and got hooked in the world of entrepreneurship. I had a need in the operating room and didn't have the actual solution I needed. So I acquired a kind of prosumer grade desktop stereo lithographic 3D printer, which at the time was was the most precise and accurate way to prototype. And then I taught myself how to use a basic CAD program, designed, prototyped and patented three different medical devices. And I was kind of hooked at that point. And that also started me thinking at a broader scale. It was also, you know, at that point that I realized I didn't really have the skill set to make that jump. And so I did what I think a lot of doctors are pretty good at doing, that is I went back to school. I think we're all pretty good at going to school, because we do it for half our lives to do what we do. And for me, that made sense. And so shout out to the Blue Devils and Duke where I went and got my MBA. But I think that further broadened my mind and started allowing me to think outside of the box that I had put myself in, as a physician, and I think, you know, as a surgeon in particular, and a sub specialized surgeon as I am, you have a very, very narrow focus. Your knowledge base is very deep, but it's narrow. And so MBAs are not necessarily. You can go deep in some areas, but they're also quite broad, which I think is a benefit because it broadens your horizon and broadens the way you think about things. And so I'd say that's kind of my cobbled together answer to your question. Oh, yeah, right, I made the jump. And I think once, you know, people talk about a product flywheel or a company company flywheel. Flywheel is that device that as you start to push it, it's a little hard to get it going. But once it moves, it has this momentum, and it spins faster and faster. I think entrepreneurship is like that with respect to ideas as well. So once you acquire the skill set, and you start thinking about things and you get one idea, and then another idea, and then your network grows, and you meet other people who are ideating, then all of a sudden, the flyheel's just spinning, almost out of control. And it's actually a really exciting feeling. 

 Frank Jaskulke 

Right on, and I gotta say, love everything you just said. You just described what I think of as the story of the Medical Alley community in this incredible ecosystem that's here, right? 40 years ago, when we got started, Earl Bakken's premise was a doc and an engineer, and you can change the world. But we could do even more if we broaden that horizon. And he said, let's get the payers, the administrators, the biotechs, digital health, get all of health care involved in trying to make this better and unleash that creativity to solve problems. For a very long time, we've done that probably better than anywhere else in the world on the patient facing, on the clinical side, whether it's devices or drugs. I believe the future of it is exactly what you're doing. We now need to innovate the operations of healthcare to make it more productive and efficient and free up that capital. And if I use your restaurant analogy, you know, if you don't have great waiters and servers out there delivering for the customers, helping them navigate, you're not going to have a profitable restaurant, and you're not going to deliver the outcomes. What you're talking about is empowering the physicians to be on the frontlines of care and deliver it better. Right on.

 Dr. Pearce McCarty 

Give them the cost, the utilization intelligence to do that. They're very smart people. And they want to make these decisions. And by the way, I brag about you guys all the time. And, Frank, I always remember, you were one of the the first kind of individuals I met, as we started moving in and developing DOCSI. So I remember that breakfast. Thank you. I do think that it is essential. And that is kind of the missing link in terms of engaging physicians within this process in a more meaningful way than they have been. It's not enough to have a just administratively curated set of options, here's what you're going to do. And the physicians really need to be part of that discussion. They need to be engaged in that process. They need to have that idea of being fiscally — of good fiscal stewards. Not, of course, in front of their clinical decision making, right. But it needs to be there. Otherwise, I just don't see us succeeding in a sustainable fashion in bending that cost of care curve.

 Frank Jaskulke 

Indeed. So maybe then the last question I'll ask you on that, like, what's next? Where's the company going? What should the community know? Yeah, what's next?

 Dr. Pearce McCarty 

DOCSI's got a phenomenal team. And I'm just super stoked about everything that we have planned coming up. So the one I'll touch on here is really, and I don't think it's necessarily us jumping on the AI bandwagon. But I mean, AI certainly is a bandwagon running at breakneck speed. You just look at I think Nvidia just surpassed Alphabet in market capitalization. So if that tells you anything, and I think it did it in like six weeks, right, it's just this rocket ship. So I know just enough about AI to be dangerous, as they say. I'm certainly, and our engineers at DOCSI are probably cringing if they hear me say this. But what we're looking at doing as we implement in different health care systems and look at the data that that they have is I think there's an opportunity to use some, essentially what would fundamentally be machine learning algorithms and a predictive fashion to optimize looking forward based on historical use patterns, what they really should have on these preference cards for a given procedure. And kind of the ultimate iteration of a preference card is something called a procedure card, where we really have consensus among a group of surgeons, for example, around the way a given procedure is going to be performed, and what's going to be utilized in order to perform that procedure. Now, in order to get consistency, you have to have engagement, right. And you can't get engagement at scale without a digital platform unless you want to hire a small army of individuals to do that. And even then, it would be challenging because surgeons have very challenging schedules. So let's use a digital platform to do that. Engage the surgeons, there's application beyond procedural environments for what I'm talking about. But we'll keep it focused on procedural environments for the time being. And so using that historical pattern to predict what needs to be used from a cost effective standpoint, without any effect on clinical care quality, and then move that towards the level of consensus for high volume procedures that would simplify supply chain by achieving the procedure card status for, say, laparoscopic appendectomy, or total knee replacement, or total hip replacement. And I think that that's, those are some of the directions that we're heading right now. We also get involved with things like contract compliance, because it is very closely integrated with obviously supply utilization. The key to that, again, is engaging the surgeons in that discussion, right? If you approach a surgeon, and you tell her you have to use this, the response is probably not going to be the one you want, unless they're already thinking that's what they want to do. They're gonna make the best decision for the patient. But if you engage them in that conversation, 'Would you consider this? Here's some data around this.' Then they're very willing to consider things and look at it, and then again, they'll make the right decision for the patient. But engaging him in that conversation is the best way to get the the end result that's sustainable, and ultimately delivers those savings. And again, what's the overall point? If I zoom out and talk about it from a mission standpoint? Well, it's to lower that overall cost of care. And I think this is this is one powerful way to accomplish that.

 Frank Jaskulke 

Right on, I think that's a great place to wrap it up. So Pearce, I'll say, thank you so much for being on the podcast today.

 Dr. Pearce McCarty 

Well, I really appreciate it. This has been fun, Frank. I am thrilled to be here. And again, compliments to you and Medical Alley for all the work that you do. Thank you for your support. Really appreciate it.

 Frank Jaskulke 

Absolute pleasure. And, folks, that's been another episode of the Medical Alley Podcast. If you're not already a subscriber, make sure to check out medicalalleypodcast.org. Or you can find us on Apple, Spotify, now on our YouTube channel, or anywhere else you get your podcasts. And hey, do me a favor. Would you share this episode with just one other person? If you did that, you'd help spread this story and so many other important stories coming out of the Medical Alley community further. I'd really appreciate it. Until next time, have a great day.